CFPB Rules Overturn Seen as Unlikely

Although the District of Columbia Circuit Appeals Court invalidated President Barack Obama’s recess appointments to the National Labor Relations Board and potentially overturned the board’s decisions since early 2012, credit unions shouldn’t assume the ruling means the CFPB will meet the same fate, said NAFCU President/CEO Fred Becker.

CFPB Director Richard Cordray was appointed the same day as the NLRB leaders during a period in which the Senate was in pro-forma session. The NLRB decision sets a precedent that could potentially invalidate Cordray’s appointment and CFPB regulations that were finalized last year.

However, Becker said that while the CFPB gained authority over other financial service providers with Cordray’s appointment, the bureau already had authority over depository institutions. As a result, Becker said, CFPB rules that apply to credit unions probably aren’t subject to being overturned in court.

“There is no chance credit unions can sit back and relax, thinking they won’t have to comply with new CFPB rules from last year,” Becker said. “If I ran a credit union, I would not sit back at all, thinking there was a chance they could go away. Instead, I would prepare for them to be implemented on the dates the CFPB has set.”

Despite the advice from Becker, NLRB plaintiffs who are also challenging Cordray’s appointment say the Jan. 25 ruling was significant because it occurred in the same D.C. court that is hearing the Cordray suit.

The NLRB ruling “will mean a lot in that court,” said John Berlau, senior fellow for finance and access to capital at the Competitive Enterprise Institute. CEI is a co-plaintiff along with the State National Bank of Big Spring, Texas, which is challenging Cordray’s appointment. That suit also alleges that CFPB rules and the resulting compliance burden have forced the bank to discontinue products and services like mortgage loans and remittances.

Berlau said because the NLRB suit was brought by a company that objected to NLRB rulings, the court’s decision could pave the way for a legal victory for the $300 million State National Bank and other financial institutions harmed by CFPB regulations.

Courts haven’t often ruled on recess appointments, Berlau said, but Obama’s unprecedented pro forma appointments “really pushed the limits” of separation of powers between the executive and legislative branches of government.

“The precedent that Obama administration could set would be very dangerous,” Berlau said. “If the president can declare the Senate to be in recess while just taking a break, you have to ask, can he do that after they leave for the night?”

Berlau said if the administration appeals to the Supreme Court as expected, all of the grounds of the NLRB suit may not survive. However, he added that he thinks the Supreme Court will place limits on the president’s ability to declare the Senate in recess.

Becker said if the suit goes to the Supreme Court, the highest court would clarify whether the CFPB already had authority over depository institutions before Cordray’s appointment, which would determine whether or not credit unions could put up a legal challenge.

However, Becker said he thinks the matter will be resolved out of court.

“I think it’s let’s make a deal time,” Becker said. Republican lawmakers have been pressing for structural change to the CFPB, such as replacing the singular director with a five-person board, making it easier for the Financial Stability Oversight Council to veto CFPB regulations and bringing the CFPB under the annual congressional appropriations process.

“From what I can perceive, there may be some sense of consideration for making structural changes to the CFPB, which thus far, the president has been dramatically opposed to,” Becker said. “But now in light of the ruling, this may get worked out.”

Berlau said CFPB structural reform is a goal of CEI, because the bureau’s “unaccountable structure” contributed to rules that extend beyond the CFPB’s authority and are unconstitutional.

“But, even with reform, we would still want those actions vindicated in court,” he said.

NAFCU supports those structural changes, although Becker stressed that the trade association also supports Cordray in his position.

“He’s reached out to us and has been cooperative,” Becker said. “Our support of the structural changes is not tied to Cordray’s confirmation.”

That position is similar to CUNA’s. President/CEO Bill Cheney said CUNA would support legislation to make additional reforms to CFPB and changes to the bureau’s funding. CUNA doesn’t take positions on presidential appointees, but the trade association has been very complimentary of Cordray.

CUNA Senior Vice President of Legislative Affairs Ryan Donovan said he would be shocked if the Obama administration didn’t appeal the case to the Supreme Court. Donovan said recent meetings with members of Congress have revolved around encouraging hearings on CFPB rules and reducing compliance burden on credit unions.